Noah Millman -- blogger for The American Conservative

You've heard the old line - that in Chinese, the word for "crisis" is also the word for "opportunity"? Well, it isn't exactly, but that doesn't stop people from saying it when they want to motivate their team to forge new paradigm synergies, or whatever. Of course, if the equation goes one way, it goes the other way as well.

I was thinking about this apropos of Matt Yglesias's latest post decrying worrying about the deficit because, if people are lining up to lend up money, that's an opportunity we shouldn't pass up.

US government debt now operates as a medium of exchange in certain kinds of international financial transactions. That means you might want some bonds for the same reason you might want a little piece of green paper with a picture of Benjamin Franklin on it. Not because you get a high return on your investment, but because it's useful for some transactional purposes. This is a problem for America's export-oriented and import-competing manufacturers, since it means foreigners are willing to swap actual goods for American debt which depresses demand for American-made goods. But it's also a great opportunity for the United States meaning that we can get away with "exporting" debt and living high on the hog. This party's not going to last forever--something Ryan is certainly correct about--but the most important question facing us today isn't how do we close the budget gap it's how do we take advantage of the conditions that have led to its growth.

The bold is my addition, added to highlight the contradiction between those two statements. The important question is, indeed, how do we take advantage of the unique position we have: operating the world's primary reserve currency and issuing by far the most liquid sovereign debt in the world. (The Euro was supposed to challenge us for both titles but, well . . .) How, not whether; I agree we should take advantage of it. The question is how, though, because some ways of "taking advantage" of the opportunity to borrow cheaply will make things worse. Ways like "exporting debt and living high on the hog."

Borrowed money needs to be repaid or rolled over at whatever interest rates prevail in the future. And the party won't last forever - eventually, the United States will not enjoy the advantage of borrowing so cheaply. Indeed, we hope we don't - our cheap borrowing costs are substantially a function of things that are wrong here and elsewhere in the world (uncertainty about the Euro-zone, the underdevelopment of Chinese financial markets, slow real growth prospects in the United States) that we hope will be ameliorated over time. If we borrow primarily in order to finance current consumption, we will not have improved our capacity to shoulder the burden of the debt we incur. But we will have gotten used to a higher level of consumption than we can actually support with our own productive activity. That's not just a missed opportunity. That's the road to a crisis.

The opportunity presented by current very low interest rates is the opportunity to give taxpayers a break and rely on foreign lenders to finance our government. But the risk is that we do that but don't restructure what our government is doing so that we are able to support the debt we incur. If we don't, at the end of the day we'll be worse off than if we had simply passed up the opportunity and continued to rely on our domestic tax base.

The advocates of austerity implicitly assume that, in fact, restructuring the government and setting better priorities is impossible; what we have to do is simply shrink it. If their assumption is right, then I do believe their conclusion follows. Which is why it's maddening to me to see purported advocates of an effective and active government - like Yglesias - frequently talk as if the biggest danger is that we miss the opportunity to borrow enough at these low, low rates. Not only is it not true - the bigger danger is that we'll borrow plenty and waste it - but acting as if how we spend is a secondary consideration provides the advocates of austerity precisely the ammunition they need to make their core argument.

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